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Saturday, 18 August 2012

Troika to accuse Greeks of building secret survival fund

Posted by the Slog

Alarming French debt data shift eurozone balance of power back to Berlin

As the true extent of Greek ally France’s short-term debt problems came to light, French
sources today reported that the Troika will produce “a damning report”
on Greek austerity and debt repayment progress….alleging in particular
that Athens is building a ‘survival fund’ to give it greater bargaining
power. This muddies the waters still further in relation to the European
tour of Greek Prime Minister Antonis Samaras next week: Berlin now
looks to be in a stronger position than previously.

Events make fools of us all. Last Saturday, The Slog nailed its colours
to the mast of an inevitable German exit from the eurozone. I still
think the odds are very much on that outcome, but one or two
developments in the last 36 hours have moved things back into the realms
of possibility for a Merkeschäuble triumph against those odds. For the
risk investor, these are the most significant ones helping Germany:

1. As The Slog posted
this morning, the ECB seems to have theoretically deeper pockets – and
France much bigger debts – than many had previously assumed. These facts
mean, respectively, that Athens is less able to play the damage
limitation card, while France is a less valuable ally than Samaras had
hoped. (It has been reported today that the Greek PM already has the
support of Francois Hollande for his desire to relax the pace of German
austerity and debt repayment).

2. Berlin is (as predicted here) gathering media forces in an attempt to steamroller opposition. German newspaper Handelsblatt reminds
Mario Draghi that, under the Lisbon Treaty, the ECB lost its
independence: Article 13 of the consolidated treaty (p. 23), states that
the Central Bank, along with the other institutions, “shall aim to
promote its [the Union's] values, advance its objectives, and serve its
interests”. In short, the ECB is subservient to Berlin-am-Brusssels. Der
Spiegel meanwhile headlines with ‘Greece Before the Abyss -Only Bankruptcy Can Help Now’,
adding pompously, ‘Greece has disappointed its creditors yet again. Now
its government plans to ask for more time — and needs billions more in
aid. But Greece’s euro-zone partners are unwilling to provide any more
help, meaning that the only hope now is to admit defeat and let the
country make a fresh start’.
3. Leaks from both the Greek tax authorities and the Troika suggest
that the Greek tax intake figures are truly dire. Hardly surprising, but
a severe weakening of the Athens position.
4. Sources close to the Troika are meanwhile suggesting that its
September report will accuse Greece again of dragging its feet on asset
sales, failing to clamp down on massive tax evasion, and deliberately pursuing policies to benefit itself rather than the creditors.
This is the point at which we segue into those factors building in favour of the Samaras bargaining position:
5. As per 4 above, there are signs (and feedback) suggesting that the
Athens government is indeed ahead on some of its spend-cutting
programmes. Sources there are certain that the Greeks are building a
budget bypassing the Troika – thus giving the country an emergency fund
to live on if things go badly wrong next week.
6. Samaras is carrying with him a compelling dossier of some social
and economic consequences of the austerity programme as it stands.
These, he will suggest, are more than enough to save face for both the
Troika in general and Merkel herself were they to accept a slowing of
austerity and lengthening of payback period.
7. As The Slog has been insisting for weeks now, the pressing
geopolitical needs of the US and Israel offer a clear alternative future
for Athens to the EU….one which would be avowedly anti-Turk. Perhaps
even more persuasive is the by now very clear evidence that Greece is
sitting on massive undersea energy reserves: these could be crucial for a
eurozone desperate to reduce its dependence on Russia as a source…and a
major boost to the commercial interests of Israel and the US.
My own view remains that the pendulum will swing back again, but much
now depends on the timescale of that taking place. To explain, I
believe that the situations in Spain and Italy will be telling if they
each a crisis point during next week – something I see (along with many
credit sector contacts) as a probability. The potential cost of a Greek
departure, when added to the de facto bailout of Spain, will bring a
furore of alarm from Bankfurt, fear from the German electorate, anger
from Paris, panic in the markets….and horror to Mario Draghi.
Put together, that combo will, I believe, force Merkel to uncock her
gun. And having done so, Berlin will have no choice but to switch to
Plan B – departure from the eurozone. I think it likely that the markets
will be the decisive factor as usual: but what of Draghi’s ECB itself –
which, according to our indiscreet official of yesterday, could in
theory absorb far more debt than most people realise?
Stay tuned. This one is finely balanced.